This is a known issue, which is being tracked here:
This is really a web browser issue, rather than an issue with Confluence itself. Confluence sends the complete image information to the browser, but then the browser doesn't rotate the image when it renders it.
Jim's workaround documented above works :)
Have a look at the following plugin: https://marketplace.atlassian.com/plugins/com.celestecs.confluence.image-lossless-rotator.
It rotates images lossless, which means the image quality and file size are not changed. Additionally it can rotate images based on EXIF orientation tag, so to fix iPhone photos orientation you will have to simply press one button.
I believe that is what you need.
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